GBP Fails to rally against USD and EUR
The British pound (GBP) failed to rally against the US dollar (USD) and euro (EUR) today following upbeat comments from the Bank of England’s (BoE) monetary policy meeting yesterday.
The British pound to euro (GBP/EUR) exchange rate was more subdued heading into the New York session at EUR 1.166, though the currency pair managed to touch a high of EUR 1.17 earlier on in the trading week.
The British pound to US dollar (GBP/USD) exchange rate slipped to USD 1.38, having reached a week high of USD 1.40 during the previous trading session.
Yesterday the BoE stated that interest rates and quantitative easing measures would remain as is, while stating their optimistic outlook of the UK economy. It was highlighted that the UK economy would recovery more quickly than anticipated and also that unemployment figures would be less severe than initially anticipated.
It was thought that the BoE’s comments would provide a boost to the British pound (GBP), though there has been little reaction from Sterling so far. Despite little immediate response, economists believe that the BoE’s positive outlook on the UK economy will provide support for the British pound (GBP) over the long term.
David Alexander Meier, Economist at Julius Baer stated that he remains neutral over the outlook for the British pound (GBP), given post-Brexit trade disruptions and the in tensions between the UK and the EU.
Despite reaching a Brexit trade deal last December, relations between the UK and EU have soured following a disagreement regarding the Northern Ireland protocol. The EU has taken legal against the UK over their decision to extend their grace period on goods entering Northern Ireland from the UK.
The rising tensions between the UK and EU are likely to add pressure on the British pound to euro (GBP/EUR) exchange rate in the near term.
GBP edges higher against NZD
Though the British pound (GBP) may not have gained momentum against the euro (EUR) and US dollar (USD), Sterling managed to edge higher against the New Zealand (NZD) during today’s session.
At the time of writing, the British pound to New Zealand dollar (GBP/NZD) exchange rate is trading at NZD 1.93, following disappointing gross domestic product (GDP) data for Q4 of 2020, which dropped by 1%.
The New Zealand dollar (NZD) was a particularly strong performing currency throughout 2020 due to imposing early coronavirus restrictions, which appeared to quickly curb the spread of infection. However, the lockdown restrictions appear to have had a delayed effect on New Zealand’s economy, revealing its impact later on in 2020.
The report from StatsNZ stated “despite fewer restrictions on domestic travel and business activity in the December 2020 quarter compared to previous quarters, the decline in annual GDP is largely due to the effects of the alert level 4 national lockdown earlier in 2020. Activity in the December quarter showed a mixed picture, some industries are down but others have held up or risen, despite the ongoing impact of COVID.”
However, the New Zealand dollar (NZD) looks to be supported in the long term by the optimistic outlook for the Chinese economy. Being New Zealand’s largest trading partner, progress within China’s economy always has a positive effect on the ‘Kiwi’ currency. It has been forecast that China’s economy will see over 6% growth in 2021, which economists say is well within reach.
Unlike many other countries, China was able to bounce back from the coronavirus crisis quickly and today is seeing very minimal rates of new infections. In 2020, China reported annual GDP growth of 2.3%, which was the only major economy to see an expansion during the coronavirus pandemic.
US dollar gains ground against Chinese yuan
While most countries continue to be impacted by the COVID-19 pandemic, China’s recovery narrative continues to be one to envy. That being said, the US dollar (USD) has gained ground against the Chinese yuan (CHY) following positive comments from the Federal Reserve this week.
At the time of writing, the US dollar to Chinese yuan (USD/CNY) exchange rate has increased to CNY 6.50. Concurrently, the US dollar (USD) is also pushing higher across most major currencies including the British pound (GBP) and euro (EUR).
During the Federal Reserve’s monetary policy meeting last Wednesday, it was stated that the US economy would recover faster than expected. Most notably, forecast GDP growth for 2021 increased to 6.5% up from 4.3% predicted last December.
Unemployment in the US had reached catastrophic levels during 2020, entering into 2021. However, the improved outlook for the US economy saw The Fed state that unemployment would fall to 4.5% this year, followed by a drop to 3.9% in 2022 and then to 3.5% in 2023.